Top Tips to Finance Your Dream Home!
Is your goal or dream to buy your first property? Or perhaps you already own your home and you’re ready for the next step up the property ladder! Whatever your circumstances, buying property can be a personally rewarding and exciting experience. But for many the thought of borrowing money and navigating the myriad of lending options can be a daunting prospect.
So I asked Lynne Sturgess, Director and Owner of Precision Loans, one of my partners and Success Advocate to share some of her finance wisdom for anyone looking towards financing their dream home!
Not many people are in a position to buy property without needing finance. The reality is most of us need to borrow money to achieve the property goal. So, having a good deposit to put down on your dream home is important. Whether that’s in the form of savings or equity in other property. Being savvy can help you make decisions confidently; here are the top 4 questions I get asked:
Does a cheaper interest rate save you money?
A loan that offers a honeymoon or introductory rate can be good but you may need to check that it is structured in the right way for you. The savings tend to be short-lived and once the honeymoon period ends, you could end up with a more expensive loan.
Checking the overall interest rate compared to the loan term you are looking for and having a loan structure that is personalised to your situation is the smart way to go.
Different lenders have different offerings and an experienced broker knows the questions to ask and areas to exercise caution. Then they can talk to you about your options. If you already have a home loan then this is a good time to view your current lending but before you think of changing, the comparison needs to include all the switching costs so that the decision you make, fits your financial plans.
Does a lower interest rate enable you to borrow more?
You would think so but alas that is not necessarily the outcome. Lenders use higher interest rates or “sensitised” interest rates to determine a client’s borrowing capacity. The theory is that if rates increase over time you should still be within an affordable range to ride out the interest rate cycle. So, the lower rate often has no impact on your ability to borrow more.
Is it wise to take out an interest only loan?
Depending on your circumstances interest only loans may help you get started in the market, but plan ahead and consider all the variables first.
With interest only, the principle and interest term are shorter – typically people take a 30 year loan with 5 years being interest only. So, at the end of the 5 years the repayments increase quite a bit. During the interest only period, your repayment only covers the interest, so the principle amount you borrowed will not reduce. The overall cost of the interest you pay may be greater over the life of the loan.
The other thing that can catch you out is not allowing for the increase of repayment when you go to a shorter term of principle and interest repayment.
Is borrowing harder because I am self-employed?
Banks attitudes to business owners vary. However, the key thing they consider is your ability to provide financial reports that demonstrate you can afford to meet your repayments. Banks have money to lend to clients who can show they can repay their loan. This is sensible and exactly what you want when investing in your dream home. Knowing you can afford your lending gives you peace of mind so that you can concentrate on doing what you do.
Also, each bank's appetite varies depending on their portfolio. If they have a high exposure to a specific area or market they may avoid new lending to that area. But they may view a different market more favourably. The repayment type can also make a difference. Most lenders want to encourage principle and interest loans, so they load interest only repayments. By doing this, they are encouraging investors and home owners to take principle and interest loans.
It’s safe to say that the current lending environment in Australia is focused on responsible lending. It is aimed at steering you towards principle and interest repayments that match your age verse retirement. The objective is to avoid putting you under undue financial stress.
Like anything, knowing what to expect up front, looking at your options without pressure and doing your homework can make your decisions easier and your expectations realistic.
Wishing you prosperity, Lynne Sturgess Precision Loans – finance designed for you!
Thanks for your insights Lynne! Lynne values what a good broker can bring to the finance industry by offering her clients a choice of multiple products and loan providers. Lynne says that “Precision Loans' strength is the experience, depth and varied base of knowledge, which it has to draw from”.
Thinking about buying or refinancing your dream home? Then Lynne from Precision Loans will be more than happy to answer any finance questions you may have to help you achieve your Home & Living goals.
Enjoy your journey!